Taxation and Investment in Thailand 2015

Transcription

1 Taxation and Investment in Thailand 2015 Reach, relevance and reliability A publication of Deloitte Touche Tohmatsu Limited

2 Contents 1.0 Investment climate 1.1 Business environment 1.2 Currency 1.3 Banking and financing 1.4 Foreign investment 1.5 Incentives 1.6 Exchange controls 2.0 Setting up a business 2.1 Principal forms of business entity 2.2 Regulation of business 2.3 Accounting, filing and auditing requirements 3.0 Business taxation 3.1 Overview 3.2 Residence 3.3 Taxable income and rates 3.4 Capital gains taxation 3.5 Double taxation relief 3.6 Anti-avoidance rules 3.7 Administration 3.8 Other taxes on business 4.0 Withholding taxes 4.1 Dividends 4.2 Interest 4.3 Royalties 4.4 Branch remittance tax 4.5 Wage tax/social security contributions 4.6 Other taxes 5.0 Indirect taxes 5.1 Value added tax 5.2 Capital tax 5.3 Real estate tax 5.4 Transfer tax 5.5 Stamp duty 5.6 Customs and excise duties 5.7 Environmental taxes 5.8 Other taxes 6.0 Taxes on individuals 6.1 Residence 6.2 Taxable income and rates 6.3 Inheritance and gift tax 6.4 Net wealth tax 6.5 Real property tax 6.6 Social security contributions 6.7 Other taxes 6.8 Compliance 7.0 Labor environment 7.1 Employee rights and remuneration 7.2 Wages and benefits 7.3 Pensions and social security 7.4 Termination of employment 7.5 Labor-management relations 7.6 Employment of foreigners 8.0 Deloitte International Tax Source 9.0 Office locations

3 1.0 Investment climate 1.1 Business environment Thailand is a constitutional monarchy with a parliamentary democracy. The Prime Minister acts as the head of government (the Prime Minister usually is the leader of a majority political party). The King is the head of state, who exercises sovereign power through the parliament, the cabinet and the courts under the provisions of the Constitution. The Thai economy, traditionally based on agricultural exports, has transformed dramatically over the past few decades, with industry and services assuming a more prominent role. Industrial activity is concentrated in the central region around the capital, Bangkok. Thailand enjoys Generalized System of Preferences benefits from a number of countries/regions, including Australia, Canada, the EU, New Zealand and the US, and has comparable access to the Japanese market. Thailand is a member of the World Trade Organization (WTO). Along with Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore and Vietnam, Thailand is a member of the Association of Southeast Asian Nations (ASEAN), a trade and social alliance intended to foster economic and social cooperation among ASEAN members and to establish a joint market for attracting foreign trade and investment. Regional cooperation has developed economic integration by forming an ASEAN Economic Community (AEC), which aims to create a single market and achieve the free movement of goods, services, investment, capital and skilled labor. Thailand also is a member of the Asia-Pacific Economic Cooperation (APEC). Price controls The Department of Internal Trade in the Ministry of Commerce administers price controls under the Price on Goods and Services Act. Price controls apply to certain goods and services, such as petroleum, diesel, and delivery and repair services. The Trade Competition Board can draft and enforce regulations and declare particular goods or businesses to be controlled, subjecting them to price and monopoly controls. These regulations are reviewed at least annually and are subject to change, depending on economic conditions and other factors. The Price of Goods and Services Act identifies business practices that are considered illegal or an infringement of the free market system. Intellectual property Thailand has three major laws dealing with intellectual property: the Patent Act, Trademark Act and Copyright Act. The Patent Act adopted internationally recognized rules and principles, including those of the Paris Convention (of which Thailand is a member party), the Patent Co-operation Treaty, the World Intellectual Property Organization Model Law, the Harmonization Treaty and the Draft Agreement on Trade-Related Aspects of Intellectual Property (TRIPs), including Trade in Counterfeit Goods. The Patent Act recognizes priority rights based on filing dates. An application for a patent filed in Thailand within 12 months (six months for a product design patent) after a prior application has been filed abroad will be deemed to be filed in Thailand on the date the prior application was filed. This priority right may be claimed, provided the foreign country involved offers reciprocal rights to Thai nationals. Trademark legislation provides protection for international brands registered in Thailand and protects Thai brands registered abroad. The Trademark Act also provides for the registration of service and certification marks. The owner of a registered trademark that has been infringed may file an action claiming compensation. The Copyright Act and subsequent amendments have brought Thailand more in line with international standards under the Bern Convention and the TRIPs agreement. The Copyright Act 1

4 protects literary, dramatic, artistic, musical, scientific, audiovisual, cinematographic, sound and video broadcasting works. Computer programs also are protected as a form of literary work. Thailand s copyright law grants the right to file a civil or criminal complaint to enforce copyright protection. The law covers two types of offenses: direct and secondary infringements. In a direct infringement, exclusive rights for merchandise have been exercised without the authorization of the copyright holder or performer; a secondary offense is deemed to have been committed when infringement occurs without a desire for profit. The Central Intellectual Property and International Trade Court is responsible for criminal and civil cases relating to violations of trademarks, copyrights and patent law, and/or the counterfeiting or imitation of trademarks. Although jurisdiction of the court technically is limited to Bangkok and its vicinity, the court effectively has jurisdiction throughout the country because there are no regional intellectual property tribunals. 1.2 Currency The currency is the Thai baht (THB). 1.3 Banking and financing A commercial bank, finance company or crédit foncier company must operate as a public company under a license from the Minister of Finance upon a recommendation of the Bank of Thailand (central bank). The Bank of Thailand issues two types of license to domestic banks: a commercial bank license and a retail bank license. A commercial bank may provide a wide range of financial services, including broking, trading and underwriting of bonds and investment units (excluding underwriting or dealing with equity securities). A retail bank may offer basic services aimed at small and medium-sized enterprises (SMEs) and individuals. Retail banks face the same restrictions as commercial banks, but are not permitted to deal in foreign exchange, derivatives and other highrisk transactions. A retail bank may request to be upgraded to commercial bank status provided, among other things, it maintains tier 1 capital of no less than THB 10 billion. Institutions unable or unwilling to upgrade to either category are designated credit companies, which are able to offer limited credit services but are not permitted to take deposits. A foreign bank also may apply for a commercial or retail license. A foreign bank may operate in Thailand through a subsidiary, which may engage in the same activities as a commercial bank and may open one branch in Bangkok and its vicinity (i.e. Pathumthani, Nakhonpathom, Nonthaburi, Samutprakarn and Samutsakorn) and three branches elsewhere (but only one branch each year). The minimum registered and paid-up capital for a subsidiary is THB 10 billion. Alternatively, a foreign bank may operate in Thailand through a full branch, which has the same scope of business as a commercial bank, but is not allowed to open additional branches. A foreign bank is permitted to hold a majority shareholding in a Thai commercial bank (known as a hybrid bank ). Most foreign firms obtain investment capital from overseas and provide local markets for short-term working capital and cash management services. They work primarily with the largest Thai banks and branch banks from their home countries. Certain banks can operate as International Banking Facilities, which allows them to engage in, inter alia, offshore and domestic lending, cross-currency exchange transactions and debt guarantees. Bangkok, the capital, is the financial center of Thailand. 1.4 Foreign investment Thailand is an attractive destination for foreign investment, with investment policies focusing on the liberalization and promotion of free trade. Foreign investment especially investment that contributes to the development of skills, technology, innovation and sustainable development is actively promoted. 2

5 The Foreign Business Act is the main law defining foreign ownership. The law restricts access to certain businesses (such as transport, retail and wholesale and services) for reasons of security, cultural heritage or perceived competitive disadvantage. A foreign juristic entity is defined as an entity that is not registered in Thailand, or that is registered in Thailand and has a foreign shareholding equal to 50% or more of the total registered capital. A limited partnership or ordinary registered partnership is classified as a foreigner if the managing partner or manager is a non-thai. Foreigners currently may not retain majority control through nominees, and penalties apply for violations. Notably, however, 100% foreign-owned businesses are permitted, except for 43 restricted businesses in three categories. Some of Thailand s free trade agreements and certain laws (e.g. the Investment Promotion Act and Industrial Estate Authority of Thailand Act) relax the ownership restrictions under the Foreign Business Law. The Board of Investment (BOI), which operates under the directives of the Office of the Prime Minister, is the principal government agency for encouraging investment in the country. Foreign investment in Thailand does not require approval from the BOI, provided the necessary operating permits have been obtained. Investors should determine whether the incentives available through the BOI outweigh the various restrictions involved. 1.5 Incentives A variety of tax and nontax (i.e. special services, guarantees, approval, etc.) incentives are offered to foreign investors through the BOI, depending on the group classification for their activities. Nontax benefits are available to all projects receiving BOI promotion, regardless of the type of activity or conditions. Tax-based incentives depend on the group classification (group A or group B) for the activities and the merit of the project, as determined under the BOI s new approach for granting incentives. The BOI s seven-year investment promotion strategy for applies to all applications submitted as from 1 January BOI-promoted companies are subject to the policies and criteria for investment promotion under BOI Announcement No. 2/2557 (dated 3 December 2014). Under the new strategy, incentives are granted according to the group classification for the activity, and additional incentives may be available based on the merit of the project, as described below. Activity-based incentives: These incentives depend on the group classification for the activity, which indicates its importance. Group A activities will receive tax and nontax incentives, while group B activities will receive mainly nontax incentives and certain import duty benefits. Merit-based incentives: These incentives are granted to encourage investment/expenditure in certain types of projects (involving enhancement of competitiveness, decentralization or industrial area development) that benefit the country or industry overall. Activity-based incentives The activities falling under each group classification and the incentives granted for each group are listed below. A1 activities: Knowledge-based activities will receive an eight-year corporate income tax exemption, without a cap; exemptions from import duty on machinery and raw materials; and nontax incentives; A2 activities: Activities to develop the country s infrastructure will receive an eight-year corporate income tax exemption, with a cap; exemptions from import duty on machinery and raw materials; and nontax incentives; A3 activities: High-technology activities will receive a five-year corporate income tax exemption, with a cap, unless otherwise provided; exemptions from import duty on machinery and raw materials; and nontax incentives; 3

6 A4 activities: Activities that add value to domestic resources and strengthen the supply chain will receive a three-year corporate income tax exemption, with a cap; exemptions from import duty on machinery and raw materials; and nontax incentives; B1 activities: Certain supporting industry activities will receive exemptions from import duty on machinery and raw materials; and nontax incentives; and B2 activities: Supporting industry activities not falling in group B1 will receive an exemption from import duty on raw materials; and nontax incentives. Merit-based incentives Incentives granted based upon the merit of a project are available under three main schemes: (1) enhancement of competitiveness; (2) decentralization; and (3) industrial area development. 1. Enhancement of competitiveness: Additional corporate income tax incentives may be granted, depending on the types and ratios of eligible investment or expenditure for the promoted company. The corporate income tax exemption cap may be increased by a specified percentage of eligible investment or expenditure, and the corporate income tax exemption period also may increase, as indicated below. Types of eligible investment/expenditure Additional corporate income tax exemption cap Research and development (R&D) 200% Donations to technology and human resources development funds, educational institutes, specialized training centers, R&D institutions or governmental agencies in science and technology Intellectual property acquisition/licensing fees for commercializing technology developed in Thailand 100% 100% Advanced technology training 100% Development of local suppliers (i.e. those having at least 51% Thai shareholders) in advance technology training and technical assistance 100% Product and packaging design 100% Ratio of qualified eligible investment/expenditure to combined revenue for project s first three years Additional corporate income tax exemption (with additional cap) 1% or THB 200 million 1 year 2% or THB 400 million 2 years 3% or THB 600 million 3 years 2. Decentralization: Under this scheme, incentives will be granted to projects located in 20 specified provinces with the lowest per capita income, i.e. the Kalasin, Chaiyaphum, Nakhon Phanom, Nan, Bueng Kan, Buri Ram, Phrae, Maha Sarakham, Mukdahan, Mae Hong Son, Yasothon, Roi Et, Si Sa Ket, Sakhon Nakhon, Sa Kaew, Sukhothai, Surin, Nong Bua Lamphu, Ubon Ratchatani and Amnatcharoen provinces. Projects in these 20 provinces will receive the following additional incentives: Additional three-year corporate income tax exemption; 4

7 Groups A1 and A2 will receive a 50% corporate income tax reduction for five years upon the expiration of the corporate income tax exemption period; Double deduction for costs of transportation, electricity and water supply for 10 years; and Additional 25% deduction for costs of installation or construction of facilities. 3. Industrial area development: An additional one-year corporate income tax exemption will be granted for projects located in industrial estates or promoted industrial zones. Incentives for activities previously promoted by BOI While certain activities have been removed from the previous list of eligible activities promoted by the BOI, eligible activities still are categorized into seven main categories, but the incentives may vary depending on the group classification for the activities. Examples of activity categories from the previous list and their group classifications under the new activity-based scheme are as follows: Categories of eligible activities Group classifications Category 1: Agriculture and agricultural products Forestry plantation Crop drying and silo facilities Manufacturing or fuel from agricultural products, including scrap, garbage or waste Category 2: Mining, ceramics and basic metals Manufacturing of nano materials or products from nano materials A2/A3 Category 3: Light industry Manufacturing of medical equipment and supplies Manufacturing of scientific equipment Category 4: Metal products, machinery and transport equipment Manufacturing and repair of aircraft, including parts and on-board equipment A1 B1 A4 A3/A4 A2 A1-A3 (depending on the parts) Category 5: Electric and electrical appliances industry Software (embedded software and enterprise software/digital content) A1/A3 Category 6: Chemicals, paper and plastics Manufacture of eco-friendly chemicals and products A2/A3 Category 7: Service and public utilities Software parks International headquarters (see details below) International trading centers Science and technology parks A1 B1 B2 A1 Other incentives Certain other incentives may be available for activity/investment in specified locations: Industrial development in border provinces in Southern Thailand: Certain incentives are applicable for activities in four border provinces in Southern Thailand and four districts in the Songkhla province. These may apply to existing projects, new projects and projects located in industrial estates or industrial zones or clusters in border provinces. 5

8 Investment in special economic zones: Certain incentives are available for projects located in special economic zones specified by the Policy Committee. Five border provinces have been identified as special economic zones, i.e. the Tak, Mukdahan, Sa Kaew, Songkhla and Trat provinces. International headquarters/regional operating headquarters As from 1 January 2015, an international headquarters (IHQ) scheme has been introduced under the auspices of the BOI to replace the regional operating headquarters (ROH) scheme from a BOI perspective. It is important to note that, from a tax perspective, IHQs and ROHs are under two separate schemes that are eligible for different tax incentives available from the Thai Revenue Department, provided the required conditions are fulfilled. Enforcement of the IHQ regime under the auspices of the BOI does not revoke the availability of the ROH scheme for tax purposes. The BOI incentives and conditions for promotional approval generally will be the same for an IHQ and an ROH, except that an IHQ must supervise associated enterprises or foreign branches in at least one foreign country, while an ROH must provide services to entities located in at least three countries (additional requirements for an ROH are described below). The scope of services an IHQ may provide also includes treasury center activity. Other qualifying services under the IHQ scheme include management and administrative services, technical services and support services, such as business planning and coordination, R&D, marketing and sales promotion, human resources training and development and corporate financial advisory services. An IHQ is classified by the BOI as a group B1 activity and will receive an exemption from import duty on certain machinery, but only for machinery used in R&D and training activities. It also will receive an exemption for import duty on raw materials (if applicable). To obtain other tax incentives, the entity will have to be registered as an IHQ with the Revenue Department, similar to the requirement for an ROH. The cabinet has approved the tax benefits the Ministry of Finance proposed for an IHQ (e.g. corporate income tax exemption on net profits from overseas, 10% corporate income tax reduction on net profits derived in Thailand); however, no Royal Decree has been issued on the tax incentives and privileges offered by the Revenue Department, which is necessary before they can become effective. Since the IHQ scheme would not revoke or disregard tax incentives made available under the ROH scheme, companies wishing to receive tax incentives under the ROH scheme and that can fulfill the conditions set out by the Revenue Department under the scheme still may apply for registration as an ROH with the Revenue Department, but will not be entitled to any benefits under the BOI scheme. Incentives available for an ROH are as follows: 10% corporate income tax rate on net profits from the provision of qualifying services to affiliates; 10% tax rate on interest and royalties received from affiliates; Tax exemption on dividends received from domestic and overseas affiliates; Tax exemption on dividends paid by an ROH to a company incorporated under foreign law and not carrying on a business in Thailand; 25% initial allowance for immovable property acquired by the ROH if the ROH conducts R&D that is used by its related parties, with the balance to be depreciated over 20 years; Flat 15% personal income tax rate on income derived by foreign employees of the ROH for the first four years of their employment (an extension to eight years is awaiting implementing guidance); and Income tax exemption not exceeding four years on income derived by foreign employees for work performed offshore for the ROH, provided the payments are not borne by the ROH or its Thailand subsidiary. To qualify for the incentives, an ROH must (1) provide services to branches or associated enterprises located in at least three other countries; (2) derive income from its branches or associated enterprises in a foreign country that is equal to at least 50% of its total income (except for the first three years of operation, during which time the requirement is one-third of total income); (3) have paid-up registered capital of at least THB 10 million; and (4) be incorporated 6

9 under Thai law and register as an ROH under the procedures and conditions prescribed by the Director-General of the Revenue Department. An ROH also may apply for investment promotion from the BOI. If granted, the ROH will be eligible for nontax incentives, including permits to bring expatriates into Thailand as skilled workers or experts to work in the ROH, permits to own land and permits to remit money outward in foreign currency. The only tax-based benefits granted by the BOI are exemptions on import duty for machinery to be used in the activities of R&D and training. Incentives for small and medium-sized enterprises The BOI also has introduced measures to enhance and strengthen the capabilities of small and medium-sized enterprises (SMEs) to enable them to compete more effectively at an international level and to promote investment under the new investment promotion strategy for ). Under the new rules, which apply as from 1 January 2015, certain activities carried out by SMEs are eligible for tax benefits and incentives, such as an exemption from corporate income tax from two to eight years (depending on the type of activities) and an exemption from import duty. Meritbased incentives will be available upon application, and other privileges will be granted. SMEs wishing to receive the incentives must apply by 31 December 2017 and have a minimum investment capital of THB 500,000 (excluding land and working capital) per project, Thai ownership of at least 51% of the registered capital, a debt-to-equity ratio not exceeding 3:1 and net fixed assets or investment size (excluding land and working capital) not exceeding THB 200 million for all promoted and nonpromoted activities, combined. Seven overall categories of activities, comprising 38 manufacturing and service activities, will be eligible for incentives, including the following: Manufacturing of biological fertilizers and organic fertilizers; Manufacturing of glass or ceramic products; Manufacturing of musical instruments; Manufacturing of metal products or metal parts; Manufacturing of rubber tires for vehicles; Manufacturing of electrical products and parts; Manufacturing of pharmaceuticals; Operation of logistic service centers; and Provision of motion picture supporting services. If an SME makes an additional investment or incurs additional expenditure on a project that will benefit the country or the industry as a whole, such as R&D, technology and innovation, expenditure incurred for the acquisition of intellectual property, licensing fees paid for commercializing technology developed in Thailand, advanced technology training, etc., the company will be entitled to additional tax incentives for one to three years, based on the merits of the project. 1.6 Exchange controls Exchange control in Thailand falls under the jurisdiction of the Bank of Thailand, as entrusted by the Ministry of Finance. The Exchange Control Act and its regulations set out the governing principles. Thai and multinational companies may operate treasury centers in Thailand to manage foreign currency for their group companies. An eligible applicant must have at least (i) three affiliates or subsidiaries in Thailand or its neighboring countries, or Vietnam; or (ii) two affiliates or subsidiaries in Thailand with affiliates or branches in at least two other countries, engaging in import or export in the international trading business or international service business that is not in a financial business. A qualifying treasury center may carry out the following activities: 7

10 Payment and collection of foreign currency obligations and receipts relating to international trade and services for its group companies; Netting obligations and receipts in foreign currency with business counterparties abroad; Buying, selling or exchanging of foreign currency for group companies, including the managing of exchange rate risks; and Foreign currency liquidity management. The Money Laundering Control Act requires all financial institutions to report to the Anti-Money Laundering Office within seven days any transaction involving more than THB 2 million in cash or THB 5 million or more in assets, or any suspicious transaction regardless of whether it meets these criteria. Any additional facts or information that may be relevant also must be reported without delay. Imprisonment of no more than two years or a fine of THB 50,000 to THB 500,000, or both, will be imposed for a false report or where the truth has been concealed from the Anti-Money Laundering Office. Commercial banks must limit loans for private consumption, holding companies and property firms. A 15% final withholding tax is imposed on interest earned on nonresident accounts. Commercial banks may process repayments of foreign loans without limit, but evidence of inward remittances of loans over USD 50,000 or its equivalent must be provided. Outward remittances of share sales may be processed by commercial banks without limit. The inward remittance of funds is permitted without limit, although conversion into Thai baht with an authorized financial institution or deposit in a foreign currency account is required immediately after payment is received and within 360 days from the transaction date. Apart from commercial bank lending limits, no restrictions apply to Thai or foreign currency (or negotiable instruments) remitted into Thailand by foreign businesses or individuals. Authorized banks may approve the remittance of USD 1 million or its equivalent at a market rate per year from a Thai national to a relative residing abroad. A person may bring in or take out of Thailand foreign currency exceeding USD 20,000 or its equivalent, provided the amount is declared to the Customs officials. Up to THB 2 million can be brought out of Thailand to bordering countries, including Vietnam and the People s Republic of China (only Yunnan province), and up to THB 50,000 to other countries without authorization. Bringing Thai currency exceeding THB 450,000 out of Thailand to bordering countries, including Vietnam and Republic of China (only Yunnan Province), requires a Customs declaration. 8

11 2.0 Setting up a business 2.1 Principal forms of business entity Thai law recognizes five main types of business organization: ordinary partnership, ordinary registered partnership, limited partnership, limited company and public limited company. The first four types of entity are governed by the Civil and Commercial Code (CCC), and the last type by the Public Limited Companies Act of 1992 (PLCA). Moreover, the branch office, representative office and regional office are recognized under the Foreign Business Act BE 2542 (FBA). The nature of the intended business operations will be an important factor in selecting the appropriate form of business organization. For a private or public limited company, if 50% or more of the company s shares are owned by a foreigner, as defined in the FBA, the company will be considered a foreigner and subject to the act, which prohibits the operation of certain business activities unless approval is obtained from the Ministry of Commerce (MOC) or it is otherwise exempted by minimum capital or other laws e.g. by virtue of the Investment Promotion Act BE 2520 (AD 1977) (IPA) administered by the Thailand BOI. Foreign investors usually carry on business through a limited company, branch or representative office. Formalities for setting up a company All business organizations must be registered with the Department of Business Development of the MOC, and with the Revenue Department for tax purposes; however, an ordinary partnership is not required to be registered with the MOC. A limited company is formed through a process that leads to the registration of a memorandum of association (articles of incorporation) and articles of association (bylaws), as its constitutive documents. A public limited company can apply to have its securities listed on the stock exchange of Thailand, provided certain requirements are met. Forms of entity Requirements of private and public limited companies Capital: Both: There is no specific minimum registered capital requirement. However, for private companies, the value of each share may not be less than THB 5, there must be at least three shareholders at all times and at least 25% of the share value must be paid in. For a public limited company, 100% of the share capital must be paid in. Shares may be allotted as paid in cash, services or property. The shareholders usually determine the value of equity contributed in kind, and the registrar of the MOC will rely on the appraisal value of services or property provided by the shareholders of limited companies (For a public company, the registrar adjudicates on the reasonable value of noncash capital contributions). At the time of each dividend distribution, private companies must appropriate at least 5% of the profit arising from the business of the company to a reserve fund, until the fund reaches 10% of the registered capital. A public limited company must allocate at least 5% of after-tax profits minus the accumulated deficit to a reserve fund every year, until the fund reaches 10% of the registered capital. Founders, shareholders: Private limited company: At least three founders (promoters) and shareholders are required. The promoters must be individuals (Thai or foreign) and each founder must subscribe for at least one share of the company (the shares held by promoters may be transferred after incorporation). Public limited company: A minimum of 15 promoters is required to incorporate. No nationality restrictions apply, but more than half of the promoters must reside in Thailand. Promoters must subscribe to at least 5% of the registered capital, in the form of fully paid-up shares. At least 50% of the number of shares specified in the memorandum of association must be offered to the public. All promoters must hold their shares for at least two years from the date of company registration, unless approval to transfer the shares is obtained at the general meeting of shareholders. A public limited company may offer its shares to the public after registering the memorandum of association with the MOC. 9

12 Directors, board members: Both: The CCC does not restrict the number or nationality of directors; a director authorized to bind the company can be a Thai citizen or an alien. If an alien director works in Thailand, he/she must hold a work permit. However, businesses that are subject to specific laws may be required to maintain a specific ratio of Thais to aliens on the board or in management. Public limited company: The board of directors must have at least five members and at least half of the directors must reside in Thailand. Shareholders elect directors. At every annual ordinary shareholders meeting, one-third of the directors must resign and stand for re-election. Directors may be liable for damages to the company caused by their failure to carry out their duties. The director of a limited company must attend the board of directors meetings; a proxy is not allowed and conference calls or circular meetings are not accepted. Management: Both: The board of directors is responsible for the day-to-day management of the company. There is no requirement that labor be represented in management. Control: Private limited company: Unless otherwise provided by the company s articles of association, most decisions at the shareholders meeting are made by majority vote. However, for certain matters, such as increases or decreases in capital and amalgamation, a special resolution must be passed in one meeting by three-fourths of the shareholders present and voting. Companies must hold an ordinary shareholders meeting at least once a year, within four months after the company s fiscal year-end. The general shareholders meeting is required. Notice of a meeting (whether an annual ordinary meeting or an extraordinary meeting) of a private limited company must be delivered to all company shareholders by registered mail and advertised at least once in a local newspaper at least seven days (14 days for a special resolution) before the date of the meeting. Public limited company: Except for notice of the shareholders meeting, the rules generally are the same as for a private limited company. Notice of the shareholders meeting for a public limited company must be sent to the shareholders and the registrar at least seven days before the date of the meeting and the meeting must be announced in a newspaper for at least three days before the date of the meeting. Types of shares: Both: Shares may be divided into common or preferred shares, and multiple voting or varying dividend shares are allowed. Nonvoting shares are not permitted. Private limited company: Share certificates may be named or bearer, but bearer shares may be issued only for fully paid-up shares; treasury shares are prohibited. Public limited company: All shares must be issued as named certificates. Taxes and fees: Both: A company must use its registration number issued by the Department of Business Development of the MOC (13 digits) as a tax ID number. Operators earning more than THB 1.8 million a year (from the value added tax (VAT) business activity, e.g. the provision of sales and services) must register for VAT purposes within 30 days of their earnings reaching THB 1.8 million. A company that operates specific businesses, e.g. commercial banks, sales of immovable property, etc., must register for Specific Business Tax within 30 days of the date of commencement of business. Private limited company: The fee for registration of the memorandum of association is 0.05% of registered capital, with a minimum of THB 500 and a maximum of THB 25,000. The government fee for registration of the company as a legal entity after the statutory meeting assigns the operation of the business to the directors is 0.5% of the registered capital, with a THB 5,000 minimum and a THB 250,000 maximum. Public limited company: The fee for registration of the memorandum of association is 0.10% of registered capital, with a minimum of THB 1,000 and a maximum of THB 50,000. The government fee for registration of a company as a legal entity after the statutory meeting assigns the operation of the business to the directors is 0.10% of the registered capital, with a THB 1,000 minimum and a THB 250,000 maximum. Branch of a foreign corporation A foreign company may set up a branch office in Thailand. A branch and its head office are treated as the same legal entity under Thai law; the branch will be considered a permanent establishment of the foreign corporation in Thailand. Lawsuits against the branch also may be brought against the foreign head office. The head office will be liable for tax on direct transactions in Thailand, even where the branch is not involved. At least one director/representative who is in charge of the operations of the permitted business of the branch office must be domiciled in Thailand 10

13 A condition for obtaining approval to set up a branch is that there must be an economic benefit for Thailand and no competition with Thai operations. The approval for setting up a branch office by obtaining a foreign business license is at the MOC s discretion. The foreign company also must bring a minimum working capital of 25% of the average amount per year of the three-year expenditure budget submitted with the license application, with a minimum of THB 3 million per business entering into Thailand, within the following periods: In cases where the period of business operations in Thailand is less than three years, the minimum capital must be brought or remitted into Thailand within six months. In cases where the period of business operations in Thailand is three years or more, the minimum capital must be brought or remitted into Thailand within three years: - During the first three months, at least 25% of the minimum capital must be brought or remitted into Thailand; - Within one year, 50% of the minimum capital must be brought or remitted into Thailand; and - The remainder of minimum capital must be brought or remitted into Thailand in an amount equal to at least 25% of the minimum capital each year (i.e. 75% within two years and 100% within three years). The amount of minimum capital brought or remitted into Thailand must be converted into Thai baht at the reference exchange rate on the date of bringing or remitting the minimum capital into Thailand. After obtaining a foreign business license from the MOC, the branch office must comply with certain obligations, such as preparing an annual operation report, reporting the remittance of the minimum capital, preparing a technology transfer report, etc. Branch offices in Thailand may be useful for project work, where the expertise and guarantees of a strong head office company are beneficial. Representative or regional office A foreign company may set up a representative or regional office in Thailand. A representative or regional office may be established for limited business purposes and cannot render services to any person other than its head office or affiliated/group companies, or earn income from any transaction; such offices can only receive funds for payment of their expenses from their head office. In addition, a representative office or a regional office has no authority to sell goods or provide services, accept purchase orders or make offers for sale or negotiate for the carrying out of business with any individual or legal person in Thailand. At least one director/representative who is in charge of the operations of the permitted business of the representative office or regional office must be domiciled in Thailand. A representative or regional office operating a business restricted under the FBA must obtain a foreign business license from the MOC. The conditions for approval for setting up a representative or regional office are the same as for a branch office. The approval for obtaining a foreign business license is at the MOC s discretion. After obtaining the foreign business license, the representative or regional office must comply with the same obligations as a branch office. 2.2 Regulation of business Mergers and acquisitions There are several options to merge or acquire a business in Thailand: amalgamation, asset purchase or share purchase. Where a transfer qualifies as the transfer of an entire business in accordance with the Thai Revenue Code, the asset transfer may be exempt from corporate income tax, VAT, Specific Business Tax and stamp duty, if prescribed conditions are satisfied. The CCC specifically regulates only amalgamations, which require the dissolution of the previous corporate entities and incorporation of a new entity (strictly speaking, the concept of merger is not recognized in Thai law; instead, the concept of amalgamation is used). Thai civil law requires merging companies to consolidate their accounts before completing the process. 11

14 The CCC generally governs mergers and acquisitions related to a private company, and the Securities and Exchange Act and the PLCA generally govern such activities for a public company. For a public company that is listed on the stock exchange of Thailand (SET), the rules and regulations of the SET and the Securities Exchange Commission must be taken into consideration. The Trade Competition Act prohibits business operators from merging businesses if the merger could result in a monopoly or unfair competition, unless permission is obtained from the Trade Competition Commission. 2.3 Accounting, filing and auditing requirements Thai Accounting Standards apply and serve as the guidelines for recording accounting entries. For areas unaddressed by Thai Accounting Standards, IAS, IFRS and US GAAP may be consulted. The Thai Financial Reporting Standard, which has similar concepts to IFRS, is used as the basis for preparing audited financial statements. The board of directors of both private and public limited companies must prepare a balance sheet at least every 12 months that must contain a summary of the assets and liabilities of the company and a profit and loss statement for the fiscal year. The board must have the balance sheet and profit and loss statement examined by an auditor appointed by the general shareholders meeting of the company, and the statement must be submitted to the general meeting for approval within four months from the end of the fiscal year. The financial statement must be submitted to the MOC within one month from the day the general meeting approves the audited financial statements. Public limited companies must disclose the following information in their annual reports: company name, location of the head office, type of business, details of shares issued and shares held in subsidiaries (if any), details of directors regarding any conflict of interest in service contracts entered into by the company during each fiscal year and their shareholdings in the company or in subsidiaries and any changes during the year. A branch, regional office or representative office must have its books and records maintained by a Thai accountant and audited by a registered Thai auditor once a year. It must submit an audited financial statement to the MOC within five months from the day the accounts are closed. 12

15 3.0 Business taxation 3.1 Overview Companies registered under the CCC and foreign companies carrying on business in Thailand through an office, branch or dependent agent generally are subject to Thai corporate income tax, unless exempted under a tax treaty. There are withholding taxes and a branch profits remittance tax. A company also may be required to register its business for VAT purposes. Specific Business Tax applies on certain business transactions, such as banking business, interest on loans and sales of immovable assets. Stamp duty is levied on certain contracts or instruments. Other taxes include the property tax, a sign board tax, customs duty and excise tax, etc. Tax exemptions and various tax incentives are available to all qualified entities, depending upon the conditions of each tax privilege (e.g. ROH or activities promoted under BOI, etc.). The main tax law is the Thai Revenue Code, which governs corporate income tax, VAT, Specific Business Tax and stamp duty. Customs duties are regulated by the Customs Act. The Excise Act governs excise tax and the Petroleum Income Tax Act governs petroleum income tax. Taxes are administered by the Revenue Department, the Customs Department and the Excise Department. Thailand Quick Tax Facts for Companies Corporate income tax rate 20% Income tax rate for petroleum companies 50% Branch corporate income tax rate 20% Tax on capital gains Basis Participation exemption 20% (standard)/15% (overseas recipients) Worldwide No Loss relief Carryforward Carryback 5 years No Double taxation relief Tax consolidation Transfer pricing rules Thin capitalization rules Controlled foreign company rules Tax year Advance payment of tax Return due date Yes No Yes No No Accounting period not exceeding 12 months Yes 150 days after end of accounting period Withholding tax Dividends Interest Royalties Branch remittance tax 10% 0%/1%/10%/15% 3%/15% 10% Capital tax No 13

16 Social security contributions Real estate tax 12.5% Local development tax 0.25%-0.95% 5% of monthly remuneration Specific business tax 3.3% (including municipal tax of 10%) Stamp duty 0.1%, or as provided under the Revenue Code VAT 0%/7% (reduced from 10% until 30 September 2015) 3.2 Residence A company is resident in Thailand if it is incorporated in Thailand. A branch of a foreign corporation is considered resident if it is registered to do business in Thailand. A nonresident company is treated as carrying on business in Thailand, and subject to the Thai tax regime, if it has an agent, employee or intermediary to generate income or profit in Thailand. 3.3 Taxable income and rates Corporate income tax is levied on both Thai and foreign companies. A locally incorporated company is taxed on its worldwide income; a foreign company is taxed only on Thai-source income. A nonresident company is a company registered in a foreign jurisdiction without an agent in Thailand; therefore, it is not considered to be carrying on business in Thailand, but it may be subject to Thai tax if it receives specific types of income from Thailand, such as dividends, interest, royalties, rent, commission fees, professional income, etc. The corporate tax rate is 30%, which is reduced to 20% (for accounting periods starting in 2013, 2014 and 2015) of net profits, calculated by deducting all expenses and costs of goods sold from revenue arising from the business during the fiscal accounting period. Petroleum companies pay tax at a rate of 50%. A branch of a foreign company pays income tax at the corporate income tax rate, but only on Thaisource profits. A branch also is liable for a 10% levy on profits remitted or booked to the foreign head office. If profits cannot be determined, an official assessment may be made based on 5% of gross receipts at the discretion of the Thai tax authorities, i.e. gross receipts-based tax is not an option taxpayers may elect. A foreign company not carrying on business in Thailand, but deriving certain types of income from Thailand, such as dividends, interest, royalties, rents, service or professional fees, etc., is subject to tax on the gross amount received, which is collected via withholding at source. The standard company tax rate may be reduced as follows: An ROH in Thailand providing qualifying services pays tax at a rate of 0% or 10% of net profits, depending on the source of the profits. A bank deriving profits from an International Banking Facility pays a 10% rate for out-out deposits (and is exempt from the 3.3% Specific Business Tax). The remittance tax on outout loans (i.e. funds borrowed abroad to be lent abroad) extended by an International Banking Facility licensed bank is 0% for profits derived from a loan business. A SME is exempt on the first THB 300,000 of net profits and pays a 15% corporate tax on net profits exceeding THB 300,000 up to THB 1 million, and 20% on net profits exceeding THB 1 million in 2014 and To be eligible for these benefits, the paid-up capital of the SME must not exceed THB 5 million, and its gross income may not exceed THB 30 million. 14

17 A tax exemption is available for a venture capital company investing in a SME: dividends received from a SME and gains arising from the transfer of shares in a SME are exempt from corporate tax if certain requirements are met. A foreign company engaged in the business of international transportation pays tax at a rate of 3% of gross receipts (and is exempt from the tax on profit remittances). Taxable income defined Taxable income includes business profits and passive income (i.e. dividends, interest, royalties, capital gains, etc.) derived from domestic and foreign sources. Corporate income tax is computed by taking into account all revenue arising from a business carried on in an accounting period, and deducting all allowable expenses. Subsidies paid by a foreign parent company to its Thai subsidiaries must be included in the corporate income tax base as revenue arising from, or as a result of, business conducted in Thailand, even where there is no requirement for the funds to be repaid. For assessment purposes, there is no distinction between a subsidiary and a branch. The tax rates on payments made to a firm not engaged in business in Thailand vary depending on the type of fees. A foreign firm generally is taxed on dividends, interest from securities investments and capital gains. Tax must be withheld at source by the Thai payer and remitted to the Revenue Department. The following are exempt from corporate income tax: Dividends paid by a Thai limited company to another Thai company with no cross shareholding, where the recipient holds at least 25% of the total shares with voting rights of the payer for three months before and after the dividends are received or is a listed company. As noted above, similar rules apply to profits from joint venture activities. In all other cases, a Thai company is required to include only 50% of dividends received from a Thai limited company as taxable income; Dividends received by a Thai company from foreign affiliates, provided the foreign profits were subject to an income tax at a rate of at least 15% (headline tax) and the Thai parent company held at least 25% of the shares in the foreign subsidiary for at least six months; and Income that benefits from tax incentives. Deductions Most normal expenses connected with earning income are deductible, including: Interest, except interest paid on capital, reserves or nondeductible funds; Reasonable and justifiable management fees charged at market value; Losses; Depreciation; Taxes, except for corporate income tax and VAT, paid to the Thai government; Bad debts, provided there is evidence of reasonable efforts to collect the debt in accordance with the Thai Revenue Code; Employer contributions to the provident fund; Donations up to specified limits; and Entertainment expenses, up to 0.3% of gross revenue or paid-up capital (whichever is higher), depending on the nature of the business and whether the expense is essential, and not exceeding THB 10 million. Head office charges or shared costs may be deducted, provided the company can demonstrate that the services are actually provided and related to business in Thailand. Regional distribution centers and international procurement offices are entitled to similar deductions. 15

18 Inventory may be valued at the lower of cost or the market price, but may not be written down unless sold or otherwise disposed of. A company may claim an additional 100% rebate on R&D costs, and an additional 100% deduction for job training expenses and for expenditure on salary paid to disabled employees. The Revenue Department can disallow an expense if it considers the expense not directly related to the earning of taxable income. Depreciation Depreciation must be based on the original cost of the asset, but any system of proportional calculation is acceptable, provided it does not result in a faster rate of deduction than the straightline method. The Revenue Code specifies maximum, but not minimum, percentages for depreciation. For hire-purchase contracts, depreciation in a certain period must not exceed installments paid during that period. Once a depreciation system has been adopted, it may be changed only with the permission of the Revenue Department. The maximum annual depreciation rate for machinery used in R&D is 40%. There is a 20% rate for equipment, vehicles and R&D costs, and a 5% rate for buildings. Depreciation of leases is complex, depending on the agreed term for the lease or default provisions. Land generally is not depreciable. The annual depreciation rate for intellectual property rights with no fixed term is 10%; for fixed-term agreements, it is 100% divided by the number of years of use. Computer hardware and software can be depreciated within three years. Temporary buildings may be written off over one year. Cars and mini-buses have a 20% rate, but the depreciable value is limited to THB 1 million. Tax depreciation incentives are available for computers and for SMEs. Losses Tax net operating losses may be carried forward for up to five accounting periods. If the losses relate to a business promoted by the BOI during a tax holiday period, the BOI tax losses may be carried over to the five years after the expiration of the tax holiday. The carryback of losses is not permitted. 3.4 Capital gains taxation Capital gains are treated as ordinary income and taxed accordingly for corporate income tax purposes. Capital gains paid to overseas recipients are subject to a 15% withholding tax, although an exemption may apply to gains derived by investors from certain tax treaty countries. 3.5 Double taxation relief Foreign tax credit Thailand grants a foreign tax credit for tax paid on foreign income, which may be set off against Thai income tax, up to the amount of Thai tax payable. Tax treaties Thailand has an extensive tax treaty network. Treaties generally provide for relief from double taxation on all types of income, limit the taxation by one country of companies resident in the other and protect companies resident in one country from discriminatory taxation in the other. Thailand s treaties generally contain OECD-compliant exchange of information provisions. Thailand Tax Treaty Network Armenia Finland Malaysia Slovenia Australia France Mauritius South Africa Austria Germany Myanmar Spain Bahrain Hong Kong Netherlands Sweden 16

19 Bangladesh Hungary New Zealand Switzerland Belarus India Norway Taiwan Belgium Indonesia Oman Turkey Bulgaria Israel Pakistan Ukraine Canada Italy Philippines United Arab Emirates Chile Japan Poland United Kingdom China Korea (ROK) Romania United States Cyprus Kuwait Russia Uzbekistan Czech Republic Laos Seychelles Vietnam Denmark Luxembourg Singapore Estonia Nepal Sri Lanka 3.6 Anti-avoidance rules Transfer pricing Under Thailand s developing transfer pricing regime, transactions between related parties must be based on market prices. The Revenue Department may adjust the taxpayer s income to disallow the deduction of certain expenses for corporate income tax purposes if it determines that the prices charged, income derived or expenses paid are not at arm s length. The following transfer pricing methods are allowed: comparable uncontrolled price, resale price, cost plus and other methods that are acceptable by international standards and that apply to the actual transactions. Transaction-based methods are preferred over profit-based methods. Although transfer pricing documentation is not currently/formally required to be maintained, a taxpayer may use documents to substantiate its transfer pricing if challenged by the tax authorities. A taxpayer may initiate an upward or downward adjustment if there is adequate documentation to substantiate the adjustment. For upward adjustments, a surcharge of 1.5% per month applies if the taxpayer appears to be underreporting corporate income tax. Advance pricing agreements (APAs) are available. However, based on current practice, the Revenue Department is not willing to accept applications for unilateral APAs. Bilateral agreements may be applied for under the mutual agreement procedure of the relevant treaty. The Revenue Department has issued a booklet that includes guidance for bilateral APAs. Thin capitalization Although Thailand does not have thin capitalization rules, for a taxpayer to obtain a BOI certificate to promote its business or obtain a foreign business license from the MOC, the taxpayer must maintain a debt-to-equity ratio of 3:1 (for BOI projects) or 7:1 (under the Foreign Business Act), including the minimum registered capital required by the authorities. Controlled foreign companies Thailand does not have CFC rules. General anti-avoidance rule Thailand does not have a GAAR. 3.7 Administration Tax year A company can choose any accounting period that does not exceed 12 months. Once chosen, the accounting period cannot be changed unless written approval is obtained from the Revenue Department. 17

20 Filing and payment Thailand applies a self-assessment system, under which the taxpayer must declare its income to the revenue office. The tax authorities can challenge the amount of tax remitted and may conduct a tax audit. Normally, a company will pay tax on a net profit basis. A company must make two payments of corporate income tax: at mid-year and year-end. The halfyear tax is calculated on an estimated 50% of the full-year tax basis and must be remitted within two months of the end of the first six months of the accounting period. If the estimated profit is underestimated by over 25% of the actual year-end profit, the company will be subject to a monthly surcharge of 1.5%, as well as a deficiency tax surcharge. The year-end corporate income tax must be remitted within 150 days of the end of the accounting period. Late filing will result in a fine of THB 2,000 and a monthly surcharge of 1.5%, up to the amount of tax payable. Consolidated returns Thai law does not contain any provisions allowing for the filing of a consolidated corporate income return, nor is provision made for the transfer of losses between members of a group. Each company must file a separate return. Statute of limitations The tax authorities may conduct a tax audit on the books and records of a company for two years from the date the corporate income tax return is submitted. The period may be extended to five years if tax avoidance or evasion is suspected. If a tax return has not been submitted, the statutory period for the assessment of tax liabilities is 10 years. A statute of limitations for the collection of tax is not necessary because the tax authorities have the power to seize a taxpayer s assets if the taxpayer fails to pay tax within 30 days after receiving an assessment notice, regardless of whether the taxpayer disagrees and intends to appeal. Tax authorities Three agencies under the Ministry of Finance are responsible for the collection of tax in Thailand: the Revenue Department, the Excise Department and the Customs Department. The Revenue Department's responsibilities are to collect and administer the following taxes: corporate and individual income tax, VAT, Specific Business Tax, stamp duty and petroleum income tax. The Revenue Department also is responsible for ensuring that the administration of tax collection is carried out in accordance with the government's policies. The Excise and Customs Departments collect excise and customs duties, respectively. Rulings A taxpayer may request a private letter ruling on a tax issue from the Legal Division of the Revenue Department. The tax officials generally follow such rulings, but they are not binding for purposes of legal proceedings. 3.8 Other taxes on business Petroleum companies The Petroleum Income Tax Act governs the levying of petroleum income tax, which is chargeable on the net profits of companies granted a concession to explore for and produce petroleum (e.g. crude oil, natural gas and other forms of natural hydrocarbons). Petroleum companies pay tax at a rate of 50%. A royalty tax also may apply. International transportation companies International transportation companies are subject to a 3% tax on gross receipts derived from freight fees on exports and airfare collected in Thailand. Other types of income still are subject to net profit-based tax. 18